Personal Loan by NBFC: Type of NBFCs and How do they Calculate Interest Rate?
Have you ever been in a situation where you wanted to take a loan but did not want to deal with the extensive and stringent borrowing procedures at banks? Fortunately, in the last decade, many new financial institutions have entered this lending game. NBFCs, (non-banking financial corporations), offer faster approval and disbursal of loans. With the competitive and attractive NBFC personal loan, you can meet any of your urgent cash requirements.
Top 5 NBFCs in India and the Interest Rates Offered by Them
With rising competition, all NBFCs are offering instant personal loans with lucrative interest rates and extended loan tenure. Some of the top NBFCs offering the most attractive personal loan deals are as follows:
| NBFCs | Maximum Loan Amount | Interest Rate (p.a.) | Loan Tenure |
| Navi | Up to Rs. 20,00,000 | Between 9% and 36% | Up to 84 months |
| Bajaj Finserv | Up to Rs. 25,00,000 | 13% onwards | Up to 60 months |
| Tata Capital | Up to Rs. 25,00,000 | Starting at 10.99% | Up to 72 months |
| Fullerton India | Up to Rs. 25,00,000 | Starting at 11.99% | Up to 60 months |
| Aditya Birla Capital | Up to Rs. 50,00,000 | 11.75% onwards | Up to 84 months |
Features of NBFC Personal Loans
Some features of NBFC loans are given below:
1. Paperless Process
Loans offered by many NBFCs follow a 100% paperless procedure and are completely online. You are not required to visit the branch office of an NBFC. The loan application process, completion of the KYC process as well as approval can be done online.
2. Relaxed Eligibility Norms
The eligibility criteria for securing loans from NBFCs are simple – they mainly take your credit or CIBIL score into account. Maintaining a high CIBIL score will improve your chances of securing a loan. Even if you do not have a requisite CIBIL rating, solid income proof can also help towards get the loan.
3. No Collateral
Many NBFCs do not require any collateral or security for personal loans offered by them. This feature helps the borrowers to avail of easy loans as they do not have to worry about huge collateral or security amount.
4. Pre-approved Loan Offers
NBFCs provide various pre-approved offers to individuals. This reduces the processing time of loans and enables quick disbursal. Moreover, the terms of repayment are also favourable in the case of pre-approved loans.
Eligibility Criteria for NBFC Personal Loan
Here are the eligibility criteria for getting a personal loan from NBFCs:
- An individual applying for a personal loan should be a resident of India.
- The borrower must have a job or be a self-employed professional. Individuals owning businesses are also eligible for personal loans.
- The age of the applicant must be between 21 and 65 years. However, the age limit might vary from one lender to another.
- The borrower should have a high credit score, preferably more than 750. However, this is variable and is different for every lender.
- Salaried individuals must have a monthly income of more than Rs. 15,000 to avail loans from NBFCs. For self employed individuals, the minimum income requirement is more than 4 lakhs.
Advantages of NBFCs Personal Loans
There are some attractive features of NBFCs that banks cannot offer. It would be best if you preferred NBFCs for personal loans because of the following reasons:
1. Instant Approval and Disbursal Process
Reputed NBFCs work with technology-driven platforms, which help them to streamline the approval process and drastically reduce the disbursal time. Navi ensures a completely paperless loan application procedure, which involves minimal documentation. After the verification process is complete, you can get access to funds within minutes. Download Navi’s mobile app to initiate the cash loan application procedure.
2. Minimal Documentation
When you visit a bank to obtain a personal loan, you always get buried in paperwork. Whereas most NBFCs operate online and offer paperless procedures, reducing the documents required. Some NBFCs, like Navi, only require your KYC documents (PAN and Aadhaar card), and your selfie.
3. Online Application and Approval Process
The introduction of NBFCs revolutionised and modernised the lending process. One of their prime benefits is their online presence. Many of them offer 100% digital application and approval processes. You do not have to visit any branch physically, and you will get all the funding from the comfort of your home.
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How is Interest Rate Calculated in NBFC Personal Loan?
Keeping aside the various ways you can use a personal loan, calculating the interest rate helps you make a suitable financial plan and choose a desirable NBFC. Upon calculation, you can find out the amount you need to repay monthly and save yourself from falling into a debt trap.
Interest on personal loans and the amount payable can be calculated using this formula:
EMI= [P x R x (1+R)^N]/[(1+R)^(N-1)]
EMI= Equated monthly instalment
P = Principal amount
R= Rate of interest
N= Loan tenure
Let’s say that Radhika applied for a personal loan of Rs. 10 lakh from an NBFC at an interest rate of 11%. She has to repay this loan in 5 years. Thus given the formula, Radhika has to pay an EMI of Rs. 21,742.
Now, the total amount she has to pay is EMI amount x 60 months = Rs. 13,04,545.
Thus, the total interest that Radhika pays is —
Rs. 13,04,545 (Total Amount) — Rs. 10,00,000 (Borrowed Amount) = Rs. 3,04,454.
Calculate Your Personal Loan EMI
Loan Amount
Rate of Interest (P.a)
%
Loan Tenure (Years)
Years
Monthly EMI
0
Total Interest
Total Amount
Disbursement Process of NBFC Personal Loan
The loan disbursement method is given below:
- Once you have applied for a loan via the online mode, you will be immediately informed about its approval stage. If you are applying through offline channels, it may take upto 24 hours for confirmation.
- After your application is approved, the NBFC will start processing your application. It may take 1-2 days.
- Once your application has passed all the necessary checks in the system, your loan will be approved. The disbursement process will be set in motion.
- Once you have received confirmation about loan approval, then you will be given a loan agreement containing details like interest charged, monthly EMIs, total repayment amount, etc. You will have to sign the loan agreement either digitally or manually.
- After signing the agreement, your loan will be sanctioned. The loan amount will be credited into your bank account within 24 hours or you may receive a cheque/DD at your registered address.
Please note that NBFCs deduct the processing fee before crediting the loan amount in your account.
Tax Benefits of Availing NBFC Personal Loan
Some categories of loans may not provide any tax benefit, whereas some pay provide tax exemptions for the borrowers. Loans which offer tax exemption are given below:
1. Education Loans
Education loans are very helpful for individuals who want to pursue higher education. One is eligible for tax deductions on education loans under Section 80E of the Income Tax Act, 1961. The entire interest component may be deducted from the gross total income. The deduction can be claimed for the entire repayment period or 8 years, whichever is earlier.
2. Home Loan
There are several tax benefits on home loans. They include tax on the principal as well as the interest component. You can claim tax deduction of upto Rs. 2 lakh for interest paid under Section 24 of the Income Tax Act. This is applicable only if the house is self-occupied and hasn’t been rented.
Moreover, homebuyers can also claim tax benefits of up to Rs. 1.5 lakh on the principal component of the loan. Additionally, expenses incurred on stamp duty and registration of the house can also be claimed as deductions under Section 80C of Income Tax Act. The maximum amount is Rs. 1.5 lakh as well.
The government has provided several other tax benefits to homebuyers to promote the housing sector. This includes the deduction of up to Rs. 50,000 under Section 80EE and Rs. 1.5 lakh under Section 80EEA of the Income Tax Act.
3. Other Loans
Other loans like car or automobile and personal loans do not provide any tax benefit to the borrowers. However, some exemptions can be claimed for a personal loan if it has been sought for any business purposes.
Types of NBFCs in India
NBFCs in India are categorised on the basis of their liabilities, size, and the activities that they undertake. The types of NBFCs based on the categories mentioned above are as follows:
1. Asset Finance Company
It is a financing institution whose primary business is to provide funds for the creation of capital assets like generators, tractors, automobiles, earthmovers, heavy industrial equipment, etc.
As per RBI’s guidelines, the financial assets of all asset financing companies should be more than 50% of their total assets, and the income from the assets should be more than 50% of the gross income.
2. Investment Company
These companies are involved in purchasing or acquisition of financial securities. They accept money from the public and invest those funds in various securities. After deducting some fees for their service, these companies give an interest amount to their investors.
3. Infrastructure Finance Company
Infrastructure finance companies are another type of NBFC. They must fulfil the following criteria:
- More than 75% of their total assets must consist of infrastructure loans.
- The net value of the fund owned should be more than 300 crores.
- They must have at least an “A” credit rating.
- IFC must have a CRAR of 15%
4. Loan Company
These companies must provide loans for a range of purposes except for items that are funded by asset management companies. As the name suggests, the principal business of these NBFCs must be to provide advance loans.
5. Systemically Important Core Investment Company
These NBFCs must fulfil the following criteria:
- At least 90% of their total assets must be investments in stocks, bonds or loans to group companies.
- More than 60% of their total assets should be investments in equity shares, including equity which may be converted in group companies.
- They must not undertake any activity as mentioned in Section 45(f) and 45(c) of the RBI Act, 1934.
- The size of their assets must be more than 100 crores.
6. Infrastructure Debt Funds
These NBFCs must raise their resources from bonds. The proceeds are transferred for long term infrastructure projects; they issue bonds in multiple currencies like Rupee or Dollar denominated bonds having a maturity period of more than 5 years. Usually, the infrastructure finance companies provide resources to infrastructure companies.
7. Microfinance Company
Microfinance companies are those NBFCs that provide loans to people living in urban and rural areas for starting their businesses. Borrowers who do not meet the criteria to get approval from banks can approach a microfinance company to satisfy their capital needs.
8. Mortgage Guarantee Companies
At least 90% of the total assets of these companies must come from mortgage guarantee businesses. Moreover, income from mortgage businesses should exceed 90% of the total income. These NBFcs must also have a fund having net value of more than 100 crores.
What Factors Affect Interest Rates of NBFC Personal Loans?
Before you take a personal loan, you should learn the factors based on which NBFCs decide the applicable NBFC Personal loan interest rates.
1. Credit Score
CIBIL score reveals your financial history and indicates your ability to repay the loan. Every lender checks this score to determine your creditworthiness and to see if you have a history of defaults. If you have a credit score less than 650, then getting a loan can be difficult but not impossible. You can get a personal loan, but you have to pay a higher interest rate.
2. Income Level
The higher your income, the more confident the lender will be regarding your repayment capability. Thus, the financial institution will impose a lower interest rate on your loan. However, if you fall in the lower-income bracket, the lender will consider you more likely to default on payments. In that situation, you will have to pay high interest.
3. Loan Tenure
A shorter repayment period reduces the likelihood of defaulting on monthly payments. Furthermore, with more frequent EMI payments, the burden of interest rates gets lower.
4. Relationship with the Lender
If you are a trusted customer of an NBFC, then the lender can be more lenient with your interest rates. By proving your loyalty and having a good credit score, you can also negotiate for a higher loan amount with a much lower interest.
Final Word
NBFC Personal loan interest rates can make your financial life easy and affordable. Moreover, the added benefits of flexible loan tenure and EMI amount are desirable features for all borrowers looking to solve their short-term cash crunch. The growing popularity of personal loans has made numerous financial institutions across India start offering these loans. Non-banking financial corporations might not hold a bank licence, but they have revolutionised the lending world.
For a 100% paperless personal loan, download the Navi app and apply today!
FAQs on NBFC Personal Loan
Ans: Even though NBFCs and banks offer a lot of common services, there are some key differences. The former can only lend and make investments but cannot accept demand deposits or issue self-drawn cheques. They are also not involved in a country’s transaction services.
Ans: As the lending feature of NBFCs and banks is quite similar, both can levy a processing fee on your loan. This fee varies across NBFCs, and a borrower’s profile can also impact the amount of fee applicable. Generally, the processing fee is between 0.5% and 2.50%.
Ans: No, under no circumstances can an applicant get a refund after paying the processing fees. This fee is a one-time non-refundable payment. So, if you are charged a processing fee of 2% on your personal loan of Rs. 10 lakh, then you will have to pay Rs. 20,000, and it will be non-refundable.
Ans: Yes, personal loans can be used for just about anything. Unlike other loans, there is no end-use restriction. Even though most borrowers opt for this loan during an emergency, you can use it to go on a foreign trip, arrange a wedding or pay utility bills.
Ans: With the paperless and online procedure, NBFCs do ensure fast approval and disbursal of the loan amount. If your documents are in order and you pass the eligibility criteria, most NBFCs will try to transfer the amount almost instantly. However, if document verification takes time, the disbursal time gets delayed.
Ans: Yes, NBFCs offer unsecured loans to their borrowers, which is a form of personal loan. However, the rates of interest on these loans are quite high due to the absence of any security or collateral.
Ans: NBFCs give very high weightage to the credit score while considering a loan application. However, if your credit score is not high or does not meet the set criteria, you may still get a loan from NBFCs if you provide solid income proof.
Ans: The interest rate on personal loans offered by NBFCs depends on various factors. If the credit score of the borrower is low, he/she may be charged a high rate of interest and vice versa. Similarly, if a borrower provides concrete income proof, he/she may be charged a lower interest rate. Therefore, interest rates can be high or low depending on the borrower’s repaying capabilities.
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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